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Treasury shifts to zero-based budgeting
National Treasury and Economic Planning CS John Mbadi pose for a photo with a briefcase containing the 2026/2027 budget statement at Parliament Buildings, Nairobi, on June 11, 2026.
National Treasury CS John Mbadi’s 2026/27 budget outlines a Sh4.82 trillion spending plan anchored on zero-based budgeting and a pledge to avoid new taxes while broadening the tax base to raise Sh3.6 trillion in revenue.
It projects a Sh1.2 trillion deficit, to be financed through Sh995 billion in domestic borrowing and Sh116.1 billion in external borrowing, alongside a shift to zero-based budgeting that requires ministries and agencies to justify all expenditure from scratch.
CS Mbadi said the Finance Bill 2026 will raise Sh120 billion through tax expansion measures rather than new taxes, while Alego Usonga MP Samuel Atandi, chair of the Budget and Appropriations Committee, noted that Ministries, Departments and Agencies (MDAs) must prepare budgets from a zero base.
The Institute of Certified Public Accountants of Kenya (ICPAK) says tax base expansion could help the Kenya Revenue Authority (KRA) raise Sh28.5 billion through the Electronic Rental Income Tax System (eRITS), landlord mapping, and recruitment of new taxpayers, but warns that proposed Income Tax penalties may hurt SMEs and push them back into informality.
KRA, however, says funding shortfalls continue to threaten revenue targets, noting it received Sh37 billion against a required Sh50.6 billion. The Sh1.2 trillion fiscal deficit—about 25 per cent of the budget—will be largely financed through borrowing, with nearly 90 per cent raised domestically, reflecting Treasury’s preference for local markets to limit external exposure.
Officials say zero-based budgeting, introduced during preparation of the Budget Policy Statement, aims to eliminate legacy inefficiencies by forcing all spending proposals to compete for justification annually. It is also expected to improve fiscal discipline and accountability across MDAs.
Treasury insists the reforms are necessary to sustain development spending while stabilising debt levels over the medium term. However, analysts and professional bodies caution that the framework’s success will depend on improved compliance, adequate funding for tax administration, and a balanced enforcement regime that does not undermine small businesses.
They add that sustaining the government’s ambitious revenue mobilisation agenda will require consistent oversight throughout the current fiscal cycle and beyond, including a robust budget implementation monitoring framework.
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